Rahul Gandhi, the face of the country’s oldest political party, seems to be waging war against India’s private sector. Ever since the Modi government announced its plans to privatise some of the country’s non-critical sectors, Rahul Gandhi has not left any chance to accuse Prime Minister Modi of ‘selling’ the country’s assets to his ‘friends’.
From accusing India’s wealth generators and big business establishment of stealing from the public to making hysterical claims of government working on behalf of a select few, Rahul Gandhi has launched a full-scale attack on Modi government’s economic policies, especially on its disinvestment strategy and privatisation.
Is Privatisation really bad, as Rahul Gandhi suggests? To understand the intricacies, one should really know what exactly Privatisation means. Let’s try and understand India’s story of privatisation and how the Congress party was itself the pioneers of the neo-liberal economic policies and idea of privatisation.
What is Privatisation?
Privatisation refers to allowing private sector participation in the management and ownership of Public Sector Enterprises. In simple terms, Privatisation implies the process of transferring ownership of a business, enterprise, public service or public property from the public sector or a government to the private sector, which are usually profit-driven.
In India, Privatisation as a trend began in the late 1980s, however, it gained prominence in the early 1990s. The idea behind privatising state assets’ was to reform the loss-making and inefficient public sector enterprises. One of the main arguments favouring the privatisation of publicly owned operations is that it increases efficiency and brings accountability resulting from private ownership and business practices.
Today, Privatisation has not just become a common economic policy tool around the globe but also has become a norm.
The story of Privatisation in India
Soon after the independence, India also adopted a very conservative economic model that almost isolated the country from the outside world. As time went by, Indian planners recognized the need to integrate with the global economy and the necessity of private investment to achieve the nation’s development goals. In later years, India repositioned itself as a mixed economy, allowing both the private and public sectors to participate in India’s growth story. Grabbing the opportunity, the private sector thrived while the public sector was affected by unsustainable inefficiencies and incompetence by the 1990s.
With the fall of the Soviet Union, the idea of state-controlled production and management of resources took a back seat. Many developing countries like India and post-socialist countries initiated steps to dilute their role in running enterprises and gradually opened up private sector participation in sectors that barred them from investing earlier.
Following the industrial policy of 1991, India began to liberalise its economy by initiating LPG reforms – Liberalisation, Globalisation and Privatisation. Various governments adopted disinvestment, strategic sale of minority shares to private partners and selling of loss-making units to the private sector to not only bring efficiency in the administrations of PSEs but also limit the losses of government-owned enterprises, that were once glorified as the ‘Temples of Modern India’ by Jawaharlal Nehru.
As India adopted neo-liberal economic policies, the government understood that it cannot be in the business of running the business and began to disinvest its shares to private entities. Some of the chronic loss-making units were either sold or closed by settling legitimate dues and compensation of its workers. Subsequent governments also took the route of strategic disinvestment of the PSEs, through which the majority shares held by the government were sold to a strategic private entity.
Often, the government has taken the disinvestment route rather than full-scale privatisation to limit their holding in the public sector enterprises. The governments have transferred minority shareholding to the general public while maintaining a 51% shareholding. The sale of a minority stake to the private sector has enabled the government to bring in competitive and efficient private sector business practices in these otherwise loss-making government enterprises.
Congress government role in Privatisation:
During the Nehruvian era, the Congress party was very much fearful of the idea of allowing the private sector to flourish. The private sector was treated with suspicion, and their growth was scuttled, thanks to the draconian ‘License Raj’ system. The private sector was at the mercy of the government and did not have any incentives to invest. Indira Gandhi continued her father’s economic policy, only to push Indian industries further into deep trouble. In fact, Indira Gandhi did more harm to India’s entrepreneurial spirit than any others in independent India.
However, with each passing decade, Indian economic policies began to undergo limited changes, and more liberal economic policies crept in. The idea of privatisation got impetus during the Rajiv Gandhi era. The infamous ‘License Raj’ was slowly dismantled by the Rajiv Gandhi government, which opened up some sectors for private participation.
It was Rajiv Gandhi who started the disinvestment of PSUs through minority stake sales. During his rule, there was a focus on deregulation and privatisation in a few sectors, such as telecom. By allowing the private sector to manufacture some of the telecom infrastructure and equipment, he initiated the much-needed reforms into such sectors that required systemic changes.
However, it was PV Narasimha Rao who took the bold gamble and altered the face of India’s industrial setup forever. Under the leadership of PV Narasimha Rao and his finance minister Manmohan Singh, the Congress government introduced the New Industrial Policy of 1991 that contained several reform measures for the public sector.
Forced by the balance of payment crisis, Prime Minister Narsimha Rao launched a raft of economic reforms that opened up most of the sectors to private participation. The Congress government led by PV Narasimha Rao ushered reforms that pulled India back after it had run out of money in 1991. Some of the reforms they took were to sell loss-making public entities to the private sector, inviting private participation in PSEs, and undertook the strategic sale of public assets. Some of these reform measures included privatisation to a low degree.
Later, former Prime Minister Atal Bihari Vajpayee and former PM Manmohan Singh took up the mantle and really brought privatisation to the forefront. Several loss-making PSEs were either closed or sold to private entities in the next decade. Under Manmohan Singh, the UPA government aggressively pushed neoliberal economic policies that helped India shed its socialist outlook.
In India, gladly, Privatisation is considered as a path towards prosperity. Over the decades, privatisation has enhanced the efficiency of the public sector enterprises and brought in major changes in the management of the business in the country. Today, the Private sector is largely considered a boon rather than a bane.
Is Privatisation bad for India?
The debate between the supremacy of the private and public sectors has been going on for a long time now and expected to continue even in the future. However, the success of privatisation in India, especially in critical sectors such as infrastructure, transportation, telecoms, basic industries of cement, steel, electricity etc., has evoked positive sentiments towards privatisation in the country lately.
The opening of strategic sectors to private investment, added with disinvestment policies implemented by the various government in the past, has brought efficiency in resource utilisation and effective public service delivery. The private players have brought in their rich experience and effective managerial skills, along with required technical know-how, into India’s enterprises.
Unfortunately, the political rhetoric against the idea of privatisation has caused more damage rather than the process itself. It is rather sad that the Congress party, which initiated most of the much-needed reforms to revive the Indian economy, has been cursing the very same idea it cherished a few decades back.
Instead of seeking credit for the liberalising India’s industrial regime, the Congress party and its leadership, especially Rahul Gandhi, are now dissing the ides of privatisation to achieve a short term political goal. Perhaps, Rahul Gandhi’s selective amnesia makes him ignore that his father Rajiv Gandhi initiated the idea of privatisation.